The Finatical
Week of January 10th, 2021 - Put Options, European Stocks, and Japan's Declining Working Age Population
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Upcoming Events
FinaticTips - Learn about Put Options
A put option or put is a contract giving the option buyer the right, but not the obligation, to sell—or sell short—a specified amount of an underlying security at a predetermined price within a specified time frame. This predetermined price at which the buyer of the put option can sell the underlying security is called the strike price.
Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes. A put option can be contrasted with a call option, which gives the holder the right to buy the underlying security at a specified price.
Have a Defined Exit Plan
When trading options, just as when you’re trading stocks, it’s critical to control your emotions. That doesn’t necessarily mean you need to have ice flowing through your veins, or that you need to swallow your every fear in a superhuman way. It’s much simpler than that: Always have a plan to work, and always work your plan. And no matter what your emotions are telling you to do, don’t deviate from it
Planning your exit isn’t just about minimizing loss on the downside if things go wrong. You should have an exit plan, period – even when a trade is going your way. You need to choose your upside exit point and downside exit point in advance. But it’s important to keep in mind, with options you need more than upside and downside price targets. You also need to plan the time frame for each exit. Options are a decaying asset and that rate of decay accelerates as your expiration date approaches. So if you’re long a call or put and the move you predicted doesn’t happen within the time period expected, get out and move on to the next trade.
Time decay doesn’t always have to hurt you, of course. When you sell options without owning them, you’re putting time decay to work for you. In other words, you’re successful if time decay erodes the option’s price, and you get to keep the premium received for the sale. But keep in mind this premium is your maximum profit if you’re short a call or put. The flipside is that you are exposed to potentially substantial risk if the trade goes awry. You must have a plan to get out of any trade no matter what kind of strategy you’re running, or whether it’s a winner or a loser. Don't wait around on profitable trades because you're greedy, or stay way too long in losers because you’re hoping the trade will move back in your favor.
Married Put
In a married put strategy, an investor purchases an asset—such as shares of stock—and simultaneously purchases put options for an equivalent number of shares. The holder of a put option has the right to sell stock at the strike price, and each contract is worth 100 shares.
An investor may choose to use this strategy as a way of protecting their downside risk when holding a stock. This strategy functions similarly to an insurance policy; it establishes a price floor in the event the stock's price falls sharply.
For example, suppose an investor buys 100 shares of stock and buys one put option simultaneously. This strategy may be appealing for this investor because they are protected to the downside, in the event that a negative change in the stock price occurs. At the same time, the investor would be able to participate in every upside opportunity if the stock gains in value. The only disadvantage of this strategy is that if the stock does not fall in value, the investor loses the amount of the premium paid for the put option. But considering the potential benefits, a married put is an excellent trading strategy and something which all traders must have in their pockets.
Bear But Spread
The bear put spread strategy is another form of vertical spread. In this strategy, the investor simultaneously purchases put options at a specific strike price and also sells the same number of puts at a lower strike price. Both options are purchased for the same underlying asset and have the same expiration date. This strategy is used when the trader has a bearish sentiment about the underlying asset and expects the asset's price to decline. The strategy offers both limited losses and limited gains. This is a traditionally less-risk less-profit strategy and is more suitable for new investors.
FinaticTrends - Financial Trends
European Stocks Hit a Record High
European stocks hit a record high on Tuesday as the new year momentum continued in global markets.
The pan-European Stoxx 600 index closed 0.8% higher, having earlier reached an intraday record of 495.41. Most sectors and major bourses were in positive territory.
Airline and travel stocks were among the biggest gainers on the index, with the sector up 3.4%. Wizz Air led the gains, surging nearly 12%, while International Consolidated Airlines Group and TUI were also among the top performers. Stocks that had benefited from stay-at-home restrictions were among the worst performers. Online grocery firm Ocado sank over 7% while Hellofresh was down 9%. This is extremely unexpected news considering the recent surge in worldwide Omicron cases but this just goes to show that nothing can be concretely predicted during these uncertain times.
Japan’s Declining Working Age Population
Last year, Japan’s working age population was 13.9% smaller than at the peak in 1995. It is no wonder that the economy has grown slowly. In fact, the working age population is now smaller than in 1975. Thanks, in part, to government efforts to encourage female labor force participation, the labor force has been increasing in the last decade as more women are working. In addition, more people are retiring later and remaining in the labor force at an older age. These trends, along with an increase in immigration, have helped to offset the impact of a declining working age population.
The other way to offset the impact is to boost productivity. In the past decade, productivity did grow at a healthy pace. This reflected more investment in labor-saving and labor-augmenting technologies, offshoring of lower productivity tasks, and more efficient usage of existing workers. Still, despite the increase, the level of productivity (output per hour worked) remains lower in Japan than in most developed economies. In other words, there is considerable room for improvement. Industries that are exposed to global competition, such as automobiles and electronics, tend to be very productive. But many domestic industries are not, often restrained by anti-competitive regulations.
Financial Guidance
“Do not save what is left after spending; instead spend what is left after saving.” ― Warren Buffett
Money Fact
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